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Publication: The Economic Times Mumbai;Date: Feb 3, 2014;Section: ET Wealth;Page: 35

5 tips on shifting a home loan

If you are planning to transfer your loan to a new bank, here arethe things you should consider to ensure that you dont regretmaking the move, says Sanjay Kumar Singh.

1

Why should you shift?

Most borrowers shift their home loans from one lender to another because of a significant difference between the rate that

their bank/housing finance company is charging its old customers vis-a-vis the one being levied on the new customers. A

difference in rates might also arise between your lender and others. If significant savings can be made, a shift is advisable.

If a customer finds it difficult to pay the EMI, he may want the lender to increase the tenure to reduce the instalment. If the

current lender refuses, the customer can shift to another. Poor service standards also warrant a shift.

2

Check the rate

Make sure that the bank to which you plan to shift has already increased its rates in the current wave of hikes. The move

will be futile if you shift to another bank and it raises the rates soon after. Transfer only if there is a significant difference, at

least 50 basis points, in the interest charged by your current bank and that offered by the new one. Also, your gains will behigher if you move early in the tenure. In case of a floating rate home loan, your current bank will not charge a prepayment

penalty and the new one may also waive the processing fee (0.5-1.5%). Still, the process is not entirely free of cost. Factor

in the time and paperwork involved, which is considerable.

3

Negotiate with lender

If there is a huge difference between the rate you are paying and the one being charged from new customers, try to

negotiate with the current lender. Many times, banks agree to lower their loan rates because they dont want to lose

customers. Banks also offer the conversion option, wherein you pay a fee ranging from 0.5-1.5% and shift to the lower rate

(charged from new customers). At this point, it is important to do a cost comp arison between the two options. 4 New

banks conditions

Whether the new bank accepts your loan request depends on a host of factors, the most important being your repayment

record with the previous lender. If it has been patchy, that is, you have been late in paying a few EMIs, your request could

be turned down. If you have taken the loan for a property that is under construction, the loan request will be accepted only i

the property is on the new banks pre-approved list. Lenders also tend to be wary of properties where the construction is

behind schedule. Next, check the margin requirement. If it is higher and your loan is in an early stage, be prepared to shell

out more money from your pocket.

5

Procedure and costs

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Get a no-objection certificate (NoC) from your existing bank. Also, obtain a document listing the outstanding principal on

your loan. Submit these to the new lender, which will exercise due diligence as it does for new customerscredit

evaluation, legal verification of property, and so on. Once the paperwork at the new bank is complete, it will hand over the

outstanding principal to your old lender. The latter, in return, will hand over the ownership papers to the new lender. Besides

the processing fee (which may be waived), there are some other costs involved in transferring a home loan, including legal

charges, valuation fees, stamp duty, etc.